As readers learned in part one of this series, a lot of office debt will mature over the next 18 months, with an estimated $310 billion in commercial real estate (CRE) financing expected to come due by 2024’s end. This debt will have to be paid off, refinanced, extended or written off.

While this much outstanding debt isn’t unusual, the timing is. Interest rates have quickly increased, largely in response to inflation and Federal Reserve efforts to slow the economy. Also at hand is a work-from-home (WFH) movement that has extended beyond what many had foreseen.

Many investors, however, expect the economy to cool enough for the Fed to begin reducing interest rates sometime in 2024 without prompting a dramatic slowdown in consumer spending or a sharp contraction in the workforce. While the most recent economic indicators point toward a soft landing rather than a recession, CRE owners are still faced with a number of questions to be addressed.

Do Large Vacancies Mean Large Rent Roll Declines?

If a hotel room isn’t rented for a night, the potential income that could have been earned is gone forever. That’s not necessarily the case with office properties.

In the third quarter of 2023, leasing volume fell by 4.2 percent quarter-over-quarter to 40.5 million square feet, but it still outperformed Q1 as large-scale leasing improved, according to JLL.

As Goldman Sachs points out, “WFH has reduced office utilization rates but has not yet led to substantial declines in office occupancy rates because most firms are locked in long duration leases.”

In other words, many buildings with above-normal vacancy rates continue to collect rent. Assuming that the owners’ loan isn’t maturing, this rental income may help ride out distressed market periods. Otherwise, it may necessitate selling off performing assets to qualify for refinancing.

Is More Absorption Ahead?

Simply put, absorption is a CRE measurement used to show the difference between the amount of space that companies or tenants vacated during a certain time frame — and the space they, or other tenants, have moved into within the same locality or time frame.

JLL reports that overall vacancy increased 39 basis points in the third quarter of 2023 to 21.0%, but a slowing volume of deliveries and increased inventory removals point to stabilization in 2024.

That’s a lot of empty space, but the story may be different in the future — a future that’s not too far away.

NAIOP, the Commercial Real Estate Development Association, forecasts that net absorption in a “no-recession” economy will amount to nearly nine million square feet in the fourth quarter and a little more than 47 million square feet in 2024. If there’s a recession, says NAIOP, then look for a negative fourth quarter this year and in the first quarter of 2024, but new absorptions in the last three-quarters of 2024 of about 28 million square feet.

Will Interest Rates Fall?

The benchmark 10-year Treasury yield recently rose by less than 1 basis points to 4.426%, after falling earlier to 4.369%, its lowest level since Sept. 20, 2023.

Lower rates will help property owners who must refinance. However, this only reflects the current rate, and the reality of tomorrow may be different. As the expression goes, “past performance does not guarantee future results.”

Has the Work-from-Home Movement Peaked?

There’s little doubt that more people work from home today than in 2019 before the pandemic. According to Forbes, 12.7% of the 2023 full-time workforce does so from home, while 28.2% work a hybrid model. But CNBC notes that “Business leaders have given various reasons for their disdain for the [WFH] model, arguing that collaboration, mentorship and employee engagement all suffer without the office.”

However, there are signs that the WFH movement — a central factor behind steeper vacancy rates — may have peaked. Fortune reports that currently all 50 states have seen WFH rates decline from pandemic highs, with fewer than 26% of U.S. households having someone participating in WFH at least one day a week down from a peak of 37% in early 2021, according to Census Bureau data.

Remote work’s gradual decline,” according to ZipRecruiter, “reflects the ongoing push from companies to get employees back in the office: 43% of companies have set tighter limits around remote work or mandated some form of return-to-office over the past year.

WFH activity is likely to decline further as we head into 2024. Here’s why:

First, a large number of major corporations are requiring workers to return to work two, three, and four days a week.

Second, in recent months there’s been escalating support for return-to-office (RTO) inside the federal government, as Washington seeks to bring many of the 2.2 million federal workers back. In August 2023, White House chief of staff Jeff Zients made an appeal to Cabinet officials about changes in WFH policies, emphasizing that it was a priority of the President “to deliver better results for the American people” by having employees spend more time in-person.

Third, while unemployment rates are near historic lows, jobs are rarely guaranteed. In the tech world, for example, there have been more than 230,000 job reductions so far this year, according to This is an issue in the WFH arena, because a 2022 study of managers by found that “60% said it’s very likely that remote employees would be laid off first if downsizing became necessary.”

Lastly, civic officials fear what some call the “urban doom loop,” an expression meaning that if major office clusters fail, we will also see property values fall, tax collections plummet, and downtown areas become empty wastelands of steel and concrete.

The result is that state and local governments will push business-friendly policies to re-open downtown office cores and suburban office parks.

The bottom line: Remote employees rarely confuse a zoom meeting for a fruitful brainstorming session. Ideas are borne from face-to-face interaction or outlined across whiteboards, then set in motion. Workplaces are “idea accelerators” where dynamic, in-person collaboration is at its best, and the modern office must be more than a place where people are merely productive.

CRE Booms and Busts

CRE veterans can remember when times were glum. There were outright recessions in 1990, 2001, 2007, and 2020. And, there’ve been prognostications of economic downturn for this year and next.

And yet, investors who looked past short-term distress in the past often did well. As The Wall Street Journal has pointed out, “Savvy buyers made a fortune after the 2008 crash, picking up real estate at distressed prices.”

This time around, look for lenders and property owners to work out extensions, when necessary, as loans come due, arrangements that continue current financing for a year or two. This creates accounting advantages for lenders and keeps properties going until — hopefully — interest rates are lower, occupancy levels strengthen, and the office market generally firms.

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